Poor Choices

Robin Hanson advised me to read Banerjee and Duflo's "The Economic Lives of the Poor" in the latest issue of the Journal of Economic Perspectives, and I wasn't disappointed. Long story short: People who live on $1 a day spend a shocking amount on alcohol, tobacco, and "festivals," and could make a lot of additional money by investing small amounts in their businesses - or just by relocating.

The deeper story, though, is what's really interesting. Banerjee and Duflo endorse the old-fashioned story that, to a large degree, the root cause of poverty is irresponsibility and a short time horizon. Of course, they don't put it like that. They sugarcoat it using the language of "self-control":

[I]f you have money at hand, you are constantly resisting temptation to spend: to buy something you want, to help someone who you find difficult to say no to, to let your child have the sweet he wants so badly. This is probably especially true of the poor, because many of the temptations you are being asked to resist are things that everyone else might take for granted.

The poor seem quite aware of their vulnerability to temptation. In the Hyderabad survey, the respondents were asked to name whether there are particular expenses that they would like to cut. 28 percent of the poor named at least one item they would like to cut. The top item that households would like to cut is alcohol and tobacco (mentioned by 44 percent of the households that want to cut on items). Then comes sugar, tea, and snacks (9 percent), festivals (7 percent), and entertainment (7 percent).

This is one place where self-knowledge does not help. Knowing that you face self-control problems makes you even less likely to try to save: You know that it would probably just end up feeding some future indefensible craving, and the machine that you so want to save for will never actually be acquired. Being naïve might actually help―you might just be lucky and save enough to buy the machine before the temptation gets to you.

Now let me hasten to add that I don't think lack of bourgeois virtue is the main reason why Africans are so much poorer than Americans. Third Worlders living on $1 a day would probably earn 50 times as much if the U.S. would just let them come here and get a job.

But the sad reality is that the First World won't be opening up its borders anytime soon. Is there anything that the world's poor can do in the meanwhile? Banerjee and Duflo inadvertently confirm that there is: Embrace the bourgeois virtues of responsibility and delayed gratification. If you're having problems due to lack of self-control, control yourself.

"The deeper story, though, is what's really interesting. Banerjee and Duflo endorse the old-fashioned story that, to a large degree, the root cause of poverty is irresponsibility and a short time horizon. Of course, they don't put it like that.... [Tracked on March 30, 2007 2:42 PM]

Banerjee and Duflo endorse the old-fashioned story that, to a large degree, the root cause of poverty is irresponsibility and a short time horizon.

I have read this paper and this summary of yours is not something Banerjee and Duflo would agree with (I certainly don't agree with it). I think you've approached this paper with your own bias about what you think the problem with the poor is. You should be a little bit more objective.

If people don't control themselves despite the fact that the consequences are the direst poverty, that suggests that they really can't control themselves, likely because the tools that rich and well-educated people use to control themselves aren't available to them. This is an argument for more paternalism. But the fact that the governments of those places tend to be really messed up and therefore unlikely to do it well cuts the other way.

Why do you think it "sad" that the U.S. doesn't want to bring in the world's irresponsible poor? Sure, they could earn more here (assuming, contrary to evidence, that they and their offspring would live more off jobs than welfare schemes). But we would have to put up with all those irresponsible people doing things like, say, driving without insurance.

I think we would be very sad if we allowed those people in.

For what it's worth, I too doubt that a bourgeois- virtue- deficit is the main reason Africans are much poorer than Americans. That issue is likely just a side effect of the much more interesting difference between Africans and Americans: 25-30 IQ points on average!

We now know beyond any question that general mental ability (most conveniently assessed as IQ) is far and away the strongest predictor of job performance, and indeed, of good performance on nearly all indicators of success in a modern, technological society.

The very large gap in general mental ability between average Africans and average Americans strongly predicts a corresponding gap in life performance should an average African move to the USA.

(Please, commenters--don't waste our time with anecdotes about some (literally one-in-a-million) African diplomat's child educated at the Sorbonne and the L.S.E. who now holds some cushy World Bank job in New York. Those are not the kind of people that Bryan Caplan was thinking of, and they aren't the people I'm writing about, either.)

We could also do other things than open our borders. We can't let in 5.5 billion people, after all, most of whom are much poorer than those living here. We can, however, try to influence the governments in some of these places to open up their markets so that the poor can become wealthier while remaining there. That is, after all, why we are wealthier here.

"Now let me hasten to add that I don't think lack of bourgeois virtue is the main reason why Africans are so much poorer than Americans. Third Worlders living on $1 a day would probably earn 50 times as much if the U.S. would just let them come here and get a job."

How can the untied states government help Africans if they can't even help our people who are starving on streets?

This type of wasteful spending has always been with us. I read a history book about Victorian England and a section mention around 80% of working class men in an industrial city spent all their evenings in pubs and many working class families spent a third to half of their income on alcohol. Social reformers at that time tried to encourage consumption of less strong drinks like beer and wine or even trying to get the working class to switch to tea and coffee without success.

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